MADRID – As a result of current developments in the world, the International Monetary Fund forecasts the economy in Spain will grow less quickly this year and next. The country will not be back to pre-pandemic levels until late 2022 or early 2023.
In recent months, the rise in inflation, logistical problems, and increased uncertainty about the further course of the pandemic has thrown a spanner in the works from an earlier, more positive, forecast. Analysts at the IMF now forecast growth of 4.6% this year and 5.8% in 2022. That is 1.1 and 0.6 percentage points respectively lower than the forecast at the beginning of October.
The current IMF forecast is quite similar to that of the Spanish Bank. It forecasts economic growth of 4.5% this year and a further 5.4% in 2022. However, both forecasts are well below those of the Spanish government, which expects growth of 6.5% this year. And, furthermore, even 7% next year.
Recovering from historic decline
Despite the revised forecast, the IMF believes Spain is recovering from a historic decline of 10.8% (of gross domestic product) in 2020. With that, the IMF says the Spanish government’s policy has proved crucial and appropriate and the vaccination campaign very effective. Nevertheless, the IMF insists the money from the European emergency fund should be used appropriately. Then, the GDP can increase by 1.5 to 2 percentage points by 2022. The International Currency Fund Spain also points out the importance of a sustainable fiscal plan. This, as well as an increase in the number of permanent employment contracts.
Fiscal Sustainability
The necessary and effective measures taken by the Spanish government to deal with the pandemic have resulted in 2021 ending with a historically high public debt of around 120% of GDP. According to the IMF, this makes Spain vulnerable. And therefore the country must ensure it has a fiscal margin for the future. If this margin is not created, the IMF fears that government debt will no longer fall below pre-pandemic levels.
As for the future of the Spanish housing market, the IMF is positive about rent subsidies for vulnerable families, the tax increase for owners of vacant homes and the expansion of the number of homes in the social rental and owner-occupied market. Although there is no fear of a new real estate bubble yet, the IMF advises Spain to keep a close eye on the rise in house prices.
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